ANY QUOTES USED MUST BE ATTRIBUTED TO JEFF RANDALL LIVE, SKY NEWS

In answer to Jeff’s question - Would you like the government to sell the shares?  Would you like to become a fully private bank as soon as possible?  

Antonio Horta-Osorio:I think that is the right thing to do.  I think governments should not be shareholders of banks.   And fortunately given the crisis many governments and therefore the taxpayers had to support banks across the world.  Especially as you know, in the US, in Germany, France, UK, Spain, that was big, a big thing from the taxpayers and I am very mindful of that and that’s why I have set up the strategy I did at Lloyds in order to get taxpayers money back.  But that was an exceptional thing which we should stop from happening again.  And therefore it’s not government’s priority to be a shareholder of banks.  I think the government should use the money into the benefit of the economy and of taxpayers and therefore I think it is the right to do, get the profit to get taxpayers’ money back.  

JEFF RANDALL:   Okay another feature of your results was the sharp increase in mortgage lending.  

AH:   Right.  

JR:   To what extent has all this been fuelled by government schemes helped to buy funding for lending?  

AH:   We have been very keen supporters of SMEs, since the start.  We have grown now SME net lending for the last two and half years at an average rate of 4 per cent a year net.  We have been always growing SME net lending in spite of the market falling.  

JR:   Yeah.  

AH:   And I have stated last year in September, with the third quarter results that given the funding for lending scheme which I thought was the absolutely the right thing to do from the Treasury and the Bank of England, we would also start growing mid-corporates and large corporates in the second quarter of this year.  And that we would grow mortgage lending as well from the third quarter on.  

JR:   The government is supporting the property market, mortgage lending through help to buy.  So what we’re seeing is a flood of cheap mortgages, rising house prices and I note from your interim presentation you expect house prices to continue.  And consumers are running down their savings.  Haven’t we been here before?  Isn’t this a classic run up to a bubble?  

AH:   Well I’m sorry Jeff but those numbers are not exactly like you say i.e. …  

JR:    Well consumers are running down their savings.  

AH:    No they are not.  I’m sorry.  Savings …  

JR:     I take issue with you.  The savings ratio is going down.  

AH:    The savings in this country are increasing now at around 4 to 5 per cent a year.  

JR:     Households?  

AH:    At a growing rate.  Yes households.  If you look at the Bank of England data, savings are growing at the growing rate    because people are saving more.  What is actually happening is that people are paying part of their debts back.  And  therefore even in terms of ratio.  The debt of the country in the private sector is going down.  And the consequence of  that is that mortgage lending in net terms is growing year on year less than 1 per cent.  So what … the adjustment is  proceeding.  What’s happening in terms of the mortgages and that’s why I think the help to buy scheme like the  funding for lending scheme is absolutely the right thing to do, is that you have a problem of people that do not have a  25 per cent deposit to have access to mortgages.  Because above a 75 per cent loan to value ratio, mortgages are quite  onerous for banks in terms of capital and therefore the market was not working properly.   And as a consequence of  that, like in Canada, I think it is the right thing to do to have a scheme whereby the government gives the guarantee,  banks sharing that risk and you make the market be normal again.  And that’s why the scheme is temporary and …  

JR:    But if ….  

AH:    … lasts only two and a half years.  

JR:    But if consumers weren’t over stretched they wouldn’t need this scheme.  If they could afford it, they could  afford it without government support.  I’m going to take issue with you about the savings ratio.  Perhaps we can  discuss that later but what’s for sure is, cheap mortgages are available, house prices are going up way ahead of  wage increases.  So consumers in terms of their …  

AH:   Well again …  

JR:    … housing exposure are becoming more stretched. 

AH:   Well again, I strongly think it depends on how you look at those numbers.  If you look at those numbers for the last 3 to  5 years, house prices are below the level they were pre-crisis.  They have gone down and then came slightly up but only  after the help to buy scheme has been announced three months ago.  

JR:    So you don’t think UK housing is overpriced?  

AH:    I do think that the increase prices until three months ago was significantly below inflation and I think that you are  correct about the fact that people have to have access, have to have the means to pay for their mortgage which they  do.  I don’t know if you know but when we give mortgages to people you have to stretch them to a 2 per cent increase  in interest rates for them to be able to support their monthly payments.  The problem is that although they can pay for  their mortgage, they do not have most of them 25 per cent deposit to give as an upfront deposit to pay for the  mortgage given that now banks are quite restrictive in terms of high loan to value mortgages.  So I do think that the  first time buyer market should be supported in order for house prices just to recover the normal, if you want, increase  in prices, like inflation, which is now the case.  House prices are going up around inflation which I do not see as a  problem but I think it is very important that the first time buyers are helped because that stimulates the construction  sector, construction sector is one of the biggest drivers of employment in this country and therefore it creates a  virtuous economic cycle.  

JR:    But that’s the problem isn’t it, house price inflation has increased but house building has not?  

AH:    Yes but I do believe that supply will follow demand and not the opposite.  

JR:    Okay.  Mervyn King the previous governor of the Bank of England said there was no long term place for help to  buy in a functioning, well functioning mortgage market …  

AH:   Well I don’t ….  

JR:    Do you disagree?  

AH:    No I don’t I just told you.  I think this is a temporary scheme to correct the market anomaly.  

JR:    So when do you say enough?  

AH:   And I think that two and a half years of the scheme is probably the right thing to do.  But of course the government should monitor how the situation improves.  And if the market normalises sooner the scheme can finish sooner.   It’s quite interesting to note, just to your points.  That the scheme has not even started.  Because it will start in January next year and you already see the house builders saying that they have significant orders and the confidence in the economy is already increasing even before the scheme started to operate.  

JR:   Okay.  

AH:   I think that is quite positive because the economic recovery of this country was very fragile.  I think it is gaining momentum, although slowly, but its gaining momentum.  It’s becoming more broader.  And I do believe both the funding for lending scheme and the help to buy were two basic game changers in this economic … in this economy gathering momentum.  

END OF PART 1  

AH:   When we did this process we normally do in the bank plans where we have our best alternative and we have a backup plan.  And this case the backup plan as I always said publically was to be able to float the bank in the market should our preferred bidder plan failed.   And the reason why we were so diligent if you want, in giving all the time that the Co-operative Group in order for them to decide whether they could buy the bank or not was because until June of this year, both plans were coincident i.e. we would have to build the TSB as an independent bank with its own systems, putting all the mortgages, the clients, the deposits inside the new TSB bank in any of the cases.  In the end we would either sell that bank to the Co-operative Group or we would float the bank in the market.  

JR:   Now the big black mark in your first half results was the horrible number for mis-selling PPI.   It’s becoming very, very big.  6.8 billion, I hope that’s the correct number.  I mean …  

AH:   It was 6.8 now it’s 7.3.  With an …  

JR:   Okay it’s …  

AH:   … additional 500 million pound provision.  

JR:   It’s going up at a rate of knots.  I mean what was going on at this bank?  

AH:   We absolutely designed for this bank a strategy from the customer’s point of view and putting the customer at the centre of what we want this bank to do.  This bank to put it into perspective is the largest retailer and commercial bank in the country.  And has great brands, assets and people.  Such as you know Lloyds Bank, Bank of Scotland, Halifax, therefore in my opinion this bank had to be put at the service of the UK economy.  Not only for this reason but also because we have had taxpayers’ support.  And it was our time to give it back.  And therefore what we did was to change the strategy, totally focus on the customer.  In my opinion, PPI was a wrong product many times sold to wrong customers.  I had already taken a similar decision in my previous job where I was the only of the big banks that did not join the legal action of the banks and I kept paying PPI complaints.  So what we did at Lloyds was exactly the same criteria.  We immediately broke with the past and decided we should redress our customers and do the right thing.  Of course the bill here was a monumental bill.   I full agree with you.  

JR:   You talked about rebuilding trust in the bank. I have to say its not working is it because according to the Ombudsman, you are now the most complained about group in British banking.  

AH:   Well again you have to look at the numbers in the right way.  We are the largest retail bank in this country.  So the largest retail bank obviously has more clients and given that it has more clients, has more size, normally has bigger numbers in everything.  When you look at the FSA reportable complaints which were just published, I believe yesterday, you can see that over the last two and a half years Lloyds has halved the reportable banking complaints and has now the best records.  Halifax, the brand Halifax has the best record of all the banks that report to the FSA reportable complaints.  

JR:   Well can I just read to you this because this came from the Ombudsman this morning.  Complaints about Lloyds Banking Group were almost 5 times higher than a year earlier at 129,000.  They also rose 38 per cent on the prior 6 months to make the part nationalised lender the most complained about group.  

AH:   Right, well again, I think you have to analyse information and the reason why those numbers are like they are, is because…  By the way 130,000 complaints is very small for banks in general because only a very small proportion of our complaints go to the Ombudsman.  So it’s very important to explain that you have complaints in the bank.  We treat those complaints as well as possible in the interests of customers. And as I’ve just told you we have around half of the complaints per customer than any other bank of the high street.  Only a small proportion of those complaints go to the Ombudsman which are the ones were customers don’t agree with our decision.  Those are a very small proportion, given that there was a backlog of PPI complaints because Lloyds unfortunately was the biggest bank in PPI we took the deliberate action of helping the FOS addressing those complaints.  And we have solved a lot of those quickly and that’s why that number increased.   

JR:   Let me bring you back to the mortgage market because it does trouble me.  I know that London’s a special case but prices here are soaring.  The government is supporting borrowing by consumers that wouldn’t be supported by the market.  We have been here before.  Are these not classic signs of a housing bubble and are you not justifying what’s going on in the same way that it was justified before.  Sooner or later overstretched consumers are going to be in deep trouble.  

AH:   No I really don’t agree.  I think as you said that London is a special case and that’s why I also agree that it was good that the help to buy scheme is limited to houses up to 600,000 pounds.  So it is not directed especially at London.  It’s directed at the rest of the country where the problems in the housing market are happening.  It’s not in London I fully agree with you.  So I think the limit of 600,000 is appropriate in order to direct this at the rest of the economy.  And I do think that in the present situation when house prices are still below where they were in 2006 number one.  And number 2, while the banks are in this gradual transition to the proper capital levels and have problems in lending above 75 per cent loan to values, a temporary scheme is the right thing to do as long as it is designed as this one is to supporting first time buyers that will lead house builders to increase the construction of new houses.  And that is as I’ve told you one of the biggest drivers of employment in this country.  I think the confidence of the scheme and the scheme itself are a game changer in terms of broadening our economic recovery and increasing its space.  

ENDS  

Full Interview on Jeff Randall Live from 7pm